The central bank had asked the public to exchange deliberately mutilated or defaced notes before December 31 and warned that it will not accept such notes from next year, extending an earlier deadline.

The President had instructed the central bank to extend the deadline till March 31, a statement from his office said.

It is unusual for politicians to publicly override decisions of the monetary board, financial analysts said.

There have been calls made to make Sri Lanka's central bank more independent following concerns that its mandate to keep inflation low has been undermined by political pressure to finance budget deficits or keep interest rates low.

In free countries central bank's will routinely exchange notes. Under Sri Lankan monetary law the central bank can refuse to exchange deliberately mutilated notes, but in practice all such notes are exchanged.

The public however faced difficulties in exchanging notes in the final weeks of the year with at least one foreign and a private local bank refusing to accept defaced notes as deposits from customers and instructing them to take the notes to the central bank.

It is not clear whether commercial banks, which operated on a license from the central bank, can refuse to allow customers to deposit such notes provided counter officers can verify that the notes are genuine.